SEVERAL BILLION PEOPLE sat dazzled before their television sets on August 8, 2008, when a blaze of fireworks lit up the Beijing sky while 2,000 drummers announced the opening of the XXIX Olympiad. What followed was a feast of color, choreography, sound, rhythm, syncopation, and precision movement. It was thrilling to watch China remind the world of its four great inventions: gunpowder, papermaking, movable type printing, and the compass. State-of-the-art entertainment displayed pottery, bronzes, and cliff paintings dissolving into ink-and-wash paintings with black figures moving across a giant scroll. Another 3,000 singers chanted Confucian sayings while 897 more performers, dressed as Chinese characters, formed the words “peace” and “harmony.” The Communist Party pulled out all the stops to introduce itself to its twenty-first-century neighbors, rivals, and customers. Zhang Yimou, China’s top moviemaker, directed the 15,000 participants in the opening ceremony that cost over one hundred million dollars. The world was impressed. Four months later the Chinese celebrated the thirtieth anniversary of the economic reforms that made this great exhibition of cultural riches possible.
India did not have an occasion to demonstrate with such spectacular showmanship its entrance into the world’s leading economies or the same need to flex its material prowess rather than its muscles. Yet India’s economic growth merits a big celebration too. The dynamism of China and India has shattered major Western assumptions about economic growth. Governments can, it seems, transform fundamental institutions and promote the individual initiatives critical to a market economy. Just as the success of the Four Little Tigers in creating their own capital independent of the West threw a spanner in dependency theory, so the carefully calibrated introduction of private capital, individual decision making, and market-determined prices in totalitarian China has undermined assumptions about the linkage of democracy and free enterprise. The relentless revolution has now swept up the two largest countries in the world, and they may well change the character of Western capitalism.
The trajectory of China and India has thus far developed in more compelling ways than that of Russia and the countries in the old Eastern bloc that have also deserted command economies. The vigorous multiparty democracy of India was in its sixth decade when the people elected a leader to revive its sluggish economy. The Chinese Communist Party kept a firm hand on the rudder of the ship of state as it sailed into the choppy waters of free enterprise in the 1980s. The United States is the major customer for both countries. Were American consumers not willing to run up large debts, India and China would have developed much more slowly. Building free market economies on a socialist base, both India and China insist that they will not tolerate for long America’s large income gap or its lack of universal health care and cheap education. This will be a tall order for them to fulfill considering that they have levels of poverty unknown in the West and that economic development has brought them both a much wider disparity between rich and poor than exists in the United States.
Moving into its second decade, the twenty-first century has already been packed with stunning changes. In the 1980s the center of world trade shifted from the Atlantic to the Pacific Ocean, just as it had moved from the Mediterranean Sea to the Atlantic Ocean in the seventeenth century. With half the world’s population accessible through the Pacific and that half endowed with growing purchasing power, the move was sure to come as the two sleeping giants, China and India, made their economic power felt worldwide. In a way they are coming back to a former position. In 1820 China and India together contributed nearly half of the world’s income; by 1950 its proportion had dropped to one-tenth. This slide has decisively stopped. Expectations are that by 2025 their share will be one-third in a vastly richer world. Both China and India are societies of ancient lineage with impressive achievements in science, religion, and the arts. As their potential for economic growth has burgeoned in the last two decades, their voices have grown louder in international meetings.
The World Trade Organization and Its Critics
China and India refused to accept the 2008 round of trade negotiations conducted at Doha, capital city of Qatar, under the umbrella of the World Trade Organization. The breakdown in the Doha round looked a lot like Yogi Berra’s “déjà vu all over again.” The sight of nations jockeying for special privileges to the neglect of shared concerns brought back scenes from the 1920s. The depths of the Great Depression and the horrors of World War II had convinced Western nations to give up protective tariffs and accept restraints imposed by the Bretton Woods agreement. Fast-forward sixty-one years, and the snake of national interests has reappeared in the global Garden of Eden.
A lot has happened since 1947, when twenty-three nations agreed to meet regularly to facilitate multilateral trade agreements and promote international economic development under the General Agreement on Tariffs and Trade, the WTO’s predecessor. Probably the most portentous of that “lot” are the waning hegemony of the United States and the waxing power of China and India. The WTO’s persistent and intrusive summons to reform has made many countries restive. WTO members outside the advanced capitalist nations are balking at the West’s distressing tendency to talk up free trade while protecting interest groups at home. Their leaders resent Congress’s doling out billions of dollars to growers of corn, cotton, sugar, soybeans, and wheat to shield them from Third World competition. Some point with incredulity to the fact that the European Union subsidizes every cow grazing in its members’ fields by more than nine hundred dollars.1 Even more censurable were the measures the International Monetary Fund took to force developing countries to accept foreign investment and short-term flows of foreign capital without restriction even though such policies increased the volatility of their already fragile economies.
In the Cancún round of negotiations of 2003, India and China had joined Brazil in turning the tables on the European Union and the United States when they demanded the removal of agricultural subsidies and other barriers to trade. Then, in 2008, India and China broke with Brazil and other developing nations by rejecting the new Doha agreements. China, eager to get its textiles into the United States, had initially favored free trade, but since 2001 a new problem has appeared on the horizon for both India and China. Oil shortages and high food prices have pushed to the fore concerns about nurturing an already pretty destitute group of subsistence farmers. Both countries wanted permission to throw up a wall of protective tariffs should there be a surge of farm exports. For the post-World War II free traders this sounded very much like moving backward. For other developing countries it seemed like a fracturing of their solidarity. Resistance to this request will be strong because most analysts realize that behind the walls of legislative protection flourish inefficiencies and corruption.
India was one of the original nations in the World Trade Organization. Since 1947 another 126 countries have joined the first 27, with an additional couple of dozen negotiating to enter. China did not belong to the WTO until 2001. It wanted to join so badly it agreed to eliminate most of its trade barriers, a deal that forced other countries to follow suit by cutting tariffs on Chinese exports. When China entered this global club, it signed on to allowing foreign banks to enter its economy by 2006, but with lots of conditions. Still simmering is the contentious issue of intellectual property rights. China gets enormous heat for its infringements of them, a sore point with the music industry of the United States and Europe. Just how difficult protecting them can be gleaned from the fact that pirated copies represent 30 percent of all DVD and CD sales in Spain, a WTO member in good standing. Perhaps history can give us some perspective. When Charles Dickens visited America in 1842, he found to his dismay unauthorized copies of his works spilling off the shelves of American bookstores.2
Sadly the big losers from the failure to ratify the Doha round were those nations at the bottom of the world trade universe, poor, smaller countries desperate for the Western nations to stop subsidizing the crops that they want to export to them. Proponents of a new agreement had hoped that high food prices might entice protected farm blocs in the West to back off. Even America’s Democratic Party, now in power, has embraced the rhetoric of protection. Progress won’t come to a halt with the failure of the Doha round. Bilateral trade agreements will replace this multilateral one, and a new round of talks will surely begin. When it does, it will become obvious that it is no longer a joust between the West and the rest, but rather a game with at least three contending groups: the developed West and Japan; the Four Little Tigers, China and India now enjoying enough economic progress to make their own demands heard; and other developing countries like Brazil and Chile threatened by their former friends India and China, whose enormous markets and accelerating exports are changing the playing field once again.
The World Trade Organization is a favorite target for protesters who sometimes ignore the fact that its 153 members and 28 observers (Russia among them) represent almost all the countries on the globe from China to Liechtenstein. Though dismissed as a tool of the United States, the WTO has taken in members like Cuba that the United States opposed. Still, as a trade organization working through a capitalist world, it often conforms to the law of the jungle, where lions get to throw around the most weight. With the lion’s share of wealth, experts, and hubris, the movers and shakers of the WTO have tried hard to ignore the demands and needs of those down the food chain. Some criticize the outsized clout in the WTO of the multinational corporations in agribusiness, pharmaceuticals, and financial services.3 The WTO exercises too much caution, others say, in its enforcement of quarantines designed to protect humans, animals, and plants. Caution seems to abound; many of the WTO’s accords for cutting tariffs won’t go into effect for another twenty years.
Within the European Union and the United States there are plenty of critics of the World Trade Organization as well. Organized labor resists heartily having to compete with low-wage labor around the world. The race to the bottom by international corporations has prompted a vigorous campaign to include labor standards in future WTO accords. Opponents to this campaign say that the WTO can’t take up every good cause supported by Westerners. Considering that labor is central to all production, its concerns hardly seem peripheral. Libertarians resent the active role given to a highly bureaucratized international organization (France alone has 147 people working at the WTO).
As corporations have become international and now multinational in the lexicon of globalization, so supranationalism is replacing internationalism, with more and more agencies, commissions, and international treaties dictating terms of behavior to nations. Activists in the West want international organizations to combat labor exploitation and protect the environment while national leaders and business interests in developing nations tend to view these as sham concerns meant to restrict trade in their goods. The WTO refuses to act against tuna nets that might trap dolphins or to place restrictions on hormone-fed beef, but it has worked to suppress protective tariffs and subsidies.4 The universal benefit of global access to goods and information may well triumph over protective impulses. All the more so now that the world’s countries, including India and China, realize that they are in the same boat whether it sinks or floats.
Dramatic Change for Each Generation in China
Generations, important everywhere, are particularly so in China. When a cohort of men and women comes of age, its members will share the common growing-up experiences. This has become apparent in modern times, when mores, practices, and technology change rapidly enough to separate parents’ worlds from those of their children. Historians don’t pay a lot of attention to generations because the continuous birth of babies makes it hard to tell when a particular generation arrives on the scene. They tend to treat differences in a thirty-year time period without thinking much about the specific perspective of young adults making their way. In China each new cohort has been marked by a violent eruption beginning in 1949, when Mao Zedong and his Communist forces successfully pushed the Chinese Nationalists across the Strait of Taiwan, then called Formosa. This brought to an end years of civil war that included the disruptions from the Japanese invasion and occupation of Manchuria in the 1930s and early 1940s.
Within seven years, Mao had launched the Great Leap Forward, his program to modernize the Chinese economy. He organized the countryside into communes of roughly five thousand families. Within two years seven hundred million people were living in more than twenty-six thousand communes. Eschewing Stalin’s push for a large, heavy industrial sector, Mao wanted to start with small units like his communes. His principal goal was a sound one: to provide incentives to keep farmers in place and to improve their output so they could feed more industrial workers. Mao championed rural manufacturing with large electrification projects to fuel rural factories.5 As the government slogan went, “Leave the farm, but not the countryside.” Most innovative in Mao’s grand scheme (and the most mocked) were the backyard furnaces to which people brought their metal cooking utensils and tools to be turned into steel. Through a mix of bad luck, bad weather, and bad planning, the Great Leap Forward ended in disastrous famines, possibly killing as many as twenty million people. This clearly marked the generation coming of age in the mid-1950s.
In quick succession came the Cultural Revolution of 1966, which turned upside down the lives of China’s youth. The Communist Party mobilized students as Red Guards to work alongside the People’s Liberation Army to root out reactionary elements found among teachers, former officials, and intellectuals generally (possibly their own parents). Youngsters tramped across the country, denouncing people and staging mock trials, which led to thousands of suicides. At the same time, former businessmen were sent to labor reform camps. By mid-1970 Mao had turned on his Red Guards. He renamed them “educated youths” and dispatched them to the countryside to live with peasant families for reeducation. This was a lexical switch that turned millions of young enthusiasts for Mao into pariahs of the state. Many young men and women stayed in the country for five or six years. It’s hard to measure the psychological impact of such experiences, but it is certain that very few people living on this planet have ever been so closely watched and capriciously manipulated as the Chinese under Mao.
China’s Economic Reformer
Mao died in 1976, leaving a society dispirited, poor, and entangled in layers of party control. He had subjected the economy to politics in two senses, oversight and a push for industrialization to the exclusion of consumption to keep out foreign influence. He also presided over great leaps in life expectancy and literacy, which were going to stand the country in good stead later.6 Two years after Mao’s death, Deng Xiaoping came to power and soon put in place a program to breathe life into the stagnating economy. In 1971, President Richard Nixon had traveled to China after an unusual diplomatic rapprochement conducted across the Ping-Pong table. By 1978 the United States had formally recognized its Cold War enemy. The State Department now maintains that it never wants to see bilateral relations with any nation become so sour that it must appeal to Ping-Pong players to carry an olive branch. Deng also presided over a popular confrontation that affected the generation coming of age in 1989, a standoff between protesting students and Communist Party officials that took place in Beijing’s Tiananmen Square.
Thousands of young people had poured into Beijing. Perhaps a million camped in the square, erecting barricades, while another two or three million workers milled around outside, railing at the government. This prodemocracy agitation is known in China as the June Fourth Incident because that day army tanks moved in to clear the square. The best estimate of the deaths from this sweep is seven hundred, but thousands more were arrested, and many of the student organizers imprisoned. The United States granted at least forty thousand residency permits after the crackdown, most of them given to Chinese students already studying here. Since a harsh wave of government repression never materialized, Tiananmen probably taught a different lesson to its young occupiers: The party could be frightened especially by the prospect of its “best and brightest” connecting with the discontented among the working class.
Yet the greatest shaper of the lives of the young in the 1980s was actually not Tiananmen Square but what had been going on in the economy, where the party had improvised an intricate dance. It released enough control on economic decisions to stimulate enterprise while retaining sufficient oversight to assure that its billion and a third people didn’t starve or rebel. First let the foot up, next down, and then start over again by releasing a bit more pressure. A step to the side would allow for an examination of the progress. Above all, the party has to keep the patterned dance from breaking into a dangerous free style.
“Miracle” is a religious term, part of Christian dogma. A miracle gives evidence of divine power and grace. The Catholic Church does not canonize anyone who is not considered to have performed a miracle. Secular society has appropriated the word. And surprisingly—considering its provenance—miracle is a favorite way to describe economic success. When the French saw the amazing prosperity across the Channel in the early eighteenth century, they called it the English miracle. The strong resurgence of Western European economies after World War II was called a miracle as were the rapid transitions to capitalism of Japan and then the Four Little Tigers. Now it’s China’s turn to have a miracle. And it’s a spectacular one.
The obstacles in the path of China’s rapid economic development covered the gamut. The first cultural one came from getting enough Chinese to accept the prospect that some Chinese would get rich while others stayed pretty much the same. Equality was a bedrock Communist value, a fact of life confirmed in housing arrangements and food allotments. Yet it is stunning how rapidly China has gone from a relatively egalitarian country to one of the world’s most unequal ones, more so than Sweden, Japan, Germany, India, Indonesia, Korea, and the United States, but still less than Mexico and other Latin American countries.7 Another obstacle to economic progress has been the enormous risk ordinary Chinese must run if they move from government posts or running government stores or restaurants to starting enterprises of their own. They forgo a guaranteed wage, however small, described in street parlance as “breaking the iron rice bowl.” That hundreds of thousands have done so to their benefit of course encourages others, mainly the young, to follow suit.
By this point in my narrative the story of how another country vaulted itself into the forefront of the world economy may seem a bit predictable. Yet China succeeded against the odds and the experts. Chinese development almost seems like a mystery story. Only instead of a dead body you have data, which admittedly can be a little deadening. Party leaders yielded parts of the economy to market imperatives as they gradually integrated them into international economic institutions. The market slowly took over from the command economy and performed its usual wizardry. Since 1979 the Chinese economy overall has grown 10 percent annually. There are other ways to express this unparalleled economic growth. The GDP of China expanded sevenfold in twenty-five years, and its world purchasing power rose, in the fifteen years between 1989 and 2004, from 5.4 percent to more than 12 percent. It moved from a low-income to a middle-income country like Turkey or Brazil within twenty years, and it did it while keeping tabs on more than a billion men and women.8
The party’s first move toward the market was to sell off its small and medium-sized state-owned enterprises. It kept the large ones but changed operating principles. Maintaining the benefits of owners’ equity, the party turned the running of these large enterprises over to managers who in time were rewarded for their performance. The state-owned outfits in heavy industry largely served military needs. In 1984 the government allowed even some of the quasi-state-owned enterprises to sell excess output at negotiated prices. As these state firms became more autonomous, returns actually went down because they used what we would call profits to raise wages and enhance benefits. These firms were at a distinct disadvantage, for they were saddled with redundant workers and retirement pensions.9 Nor did they serve the country’s much greater need for light industry and service enterprises. Automaking remained a state enterprise or became a joint venture with foreign firms, an arrangement that became popular for hotels as well.
China’s Economic Zones
Deng established four special economic zones on the south coast that could trade freely and accept foreign investments. These proved so successful that fourteen other coastal cities soon got the same privileges. Values changed with practices. Before the creation of these zones, the party had considered the prosperous southern province of Guangzhou tainted by Western barbarian businessmen because of its proximity to booming Hong Kong. After the British returned Hong Kong to China in 1997, it became a model of modernization for China.
Opening up on many fronts, the party sent a group of young leaders on tours of Western Europe, the United States, Japan, South Korea, and Singapore. They came back convinced that China should emulate the crash program of Japan’s Meiji Restoration a century earlier. The collapse of the Soviet Union enabled Deng to overrule party leaders who still favored central planning. He also possessed the necessary managerial skills for the chairman of a party that ruled such a vast area, for he knew how to delegate authority and mediate differences.10 He continued Mao’s policy of decentralizing decision making, which was aided by the deeply entrenched party officials in rural areas whom Mao had entrusted with much responsibility. Overcoming the opposition of conservatives, reformers performed a bit of lexical sleight of hand, calling their move one toward a “socialist market economy,” treating their former central planning as a method needing retooling.
To accommodate its mix of private and state-owned firms, the party introduced a dual-track system of prices and exchange rates that applied at both retail and wholesale levels. Since they diverged quite a bit, people scrambled to buy things at the state rate unless there was a marked difference in quality. The dual track encouraged graft as well. People used their party connections to buy things at the lower state price or to resell industrial material to private enterprises at much higher prices. This form of corruption exposed the party to criticism and hastened the move toward private production. By 1993 a floating system of exchange rates had replaced the special rate for the Bank of China, and the dual track was eliminated. Bribery and graft constituted an intractable obstacle to China’s otherwise straightforward progress. Bribery is by no means confined to the East. The great Germany company Siemens paid the largest fine in corporate history, $1.6 billion, in 2008 for illegal payments made around the world over the course of sixty years.11
China had begun its reform program in 1978 with a peasant agrarian economy. Rural population was 71 percent, down from 89 percent when the Communist Party came to power, but still disproportionately large. Two very old problems dogged the Chinese economy: not growing enough food yet having more people in the rural areas than jobs for them.12 Just before Deng’s reforms in late 1978, one collective farm secretly leased out its land to individual households and divvied up the obligatory procurement quotas. The success of this clandestine reform demonstrated the gains to be had from privatizing farming, for despite a drought, this collective in Anhui Province increased its output by 30 percent. So the party caved in and gave up on collective farming, at least for the poor and mountainous areas. Then when the government became aware that local officials might strip the assets of the old collectives, it sped up the privatization of farming so that local officials could not sell collective property to their cronies at bargain basement prices. The new system became known as that of household responsibility.
In 1984 China’s Township and Village Enterprise brought industry to the rural areas that partially solved the old problem of providing jobs for the surplus population there. Rural industrialization generated more than two-thirds of the thirty million new jobs originating in the countryside. Keeping the people in place saved on infrastructural costs and absorbed cheap off-season farm labor. The program began with the stipulation that after fifteen years the private enterprises would be returned to collective ownership, but this provision was extended to thirty years and probably will be dropped altogether. The number of people living in rural areas didn’t begin to decline until 1998. Deng’s reforms raised the economic growth rate to 7.4 percent even in the remote western hinterlands, compared with a startling 12.8 percent growth rate along the coast.13
Rural households, wishing to avoid discrimination against private enterprise, often registered as having collective ownership. Villagers called this dodge wearing the red cap. The original household registration system tied peasants to the land, but discrimination against private ownership tapered off after 1992. An article in the China Daily in 1994 noted that private firms no longer bothered to feign having a red cap.14 These local enterprises became more competitive with an expanded market within the country. Their contribution to China’s export sector can be gauged by the fact that one municipality turns out some 35 percent of the socks sold throughout the world! China’s abundant labor still plays an enormous role in its economic development.15
The lagging wages in the countryside have prompted fourteen million Chinese women and men to head off for richer parts, with the number rising as the effects of the 2009 recession spread. This continuing trend presents a serious challenge to social stability, despite there being benefits for both receiving and sending areas. Migrants can double their incomes, even though they make less than regular city dwellers. Like America’s undocumented workers, migratory Chinese workers get marginal jobs with long hours, bad conditions, and low pay. While China has managed to avoid the creation of slums around its big cities, migrants must live in dormitories, in shelters, or on work sites. In Shanghai, for instance, the living space for a family in 1999 averaged 17.27 square yards (roughly 15 by 10 feet); migrants, leaving their families behind, have only half that space.16
On the thirtieth anniversary of Deng’s Open and Reform policy in late 2008, party leaders moved even further away from collective farming with a provision that allowed farmers to sell their thirty-year land use rights to other farmers or to companies. As Chinese annual growth drops from 10 to 8 percent, reviving the rural economy has become paramount. With this reform, the families of some eight hundred million peasants would be able to borrow money on their farm collateral or sell their stake in land and join in the surge of consumption that China’s urban population has enjoyed. This would lift domestic sales as exports slackened in the world recession. While some sold farmland might be taken out of cultivation for other uses, plots could also be consolidated for efficiencies of size. With fewer farmers and more investment in agricultural improvements, leaders hope productivity will rise.17 Chinese peasants are also savers, so the government is hoping that with greater earnings they might start consuming and make up for the deficit in exports.
China is close to the physical size of the United States, but much more mountainous. Its hilly interior remains far poorer than the plains of the coastline. Compared with the American population of two hundred million at the end of the 1970s, the Chinese was almost one billion. Drastic measures had been taken to slow further population growth. In the 1970s came the “later, longer, fewer” campaign, which urged couples to marry later, wait longer between conceptions, and have fewer babies in all. In 1979, Deng introduced the one-child policy. The government plans to continue the one-child limit until 2010 at least. It applies only to the Han Chinese living in the populous coastal area. Still, even with its many exceptions, the Chinese reproduction rate has dropped to 1.7, higher than Western Europe’s 1.4 rate, but lower than that 2.1 replacement rate in the United States. The success of the policy can be gauged by the fact that in the 1950s China had 30 percent of the world’s population, and it now has 20 percent.18 One unintended consequence has been a skewed male to female ratio caused by many couples’ aborting female fetuses to guarantee that their one child is a boy.
Before the effects of the one-child policy were felt, infant mortality dropped in the 1960s, producing a bulge of work-ready young people. With productive jobs awaiting them, this generation coming of age in the 1980s added to China’s prosperity. The longer-range improvement in health and life expectancy has also had a positive impact on economic development. In recent decades, China’s dependency rate (the number of children and elderly depending upon workers to pay for their care) has increased. By now two generations have grown up without sisters, brothers, aunts, uncles, and cousins. The number of job seekers entering the labor force is declining as the number of people retiring skyrockets. By 2010, 332 million Chinese men and women will be over fifty. A sobering thought for Americans: The government may have to cash in some of its $1.4 trillion in U.S. Treasury notes that China holds to pay for the retirement of its aging population.19
While often divided on how to proceed forward, the Communist leadership has agreed that it is essential to maintain the party’s control over the daily lives of the people. Yet moving toward a market economy, even a “socialist market economy,” meant encouraging men and women to act on their own. Private initiative and state control exist in an awkward tandem. Reform leaders subscribed to the bird cage economy doctrine, in which the central plan is the cage, and the bird the economy. The moral: Without the cage, the bird will fly away, but the bird has to have the feeling of space, so the cage must be swung to create the illusion of greater space to keep the bird happy.20 But Westerners might say that the party now has the tiger by the tail. It can’t slow down or reverse course because the gains have been too conspicuous and widely shared. A phrase in a Los Angeles Times article caught something of the world-turned-upside-down aspect of Chinese development: “former Red Guards-turned-millionaires.”21
The June Fourth Incident was a wake-up call for the party. It would take strong material progress to hold the demands for more freedom at bay. In 1992 Deng Xiaoping went on a speaking tour in the south of China. Invariably referred to as his “famous trip,” it prepared the country for a round of new reforms that would be instituted in subsequent congresses of the China Communist Party. The law and the party looked more favorably upon private property. A 1999 constitutional amendment gave private ownership the same status as state ownership. Trading in company stock was regularized; employers were allowed to fire unneeded workers. This latter advance recalls the clothiers in sixteenth-century England who convinced the Privy Council that it was wiser to let them save their capital for the return of demand than to spend it keeping weavers employed. Capitalists were allowed to become members of the Communist Party. Party membership grew by 10 percent in the five years before 2007, when it hit seventy-four million.
Importing technology and enhancing technological education continue apace, though China’s investment in education is half that of Brazil and considerably less than that of India. China sends its brightest young people to foreign universities to learn the best engineering and science firsthand. This has been a policy sword with a double edge. Of the some thirty-five thousand students sent abroad in the late 1990s, only nine thousand came back to China.22 But the return rate is improving, and in 2006 the United States sent more than 11,000 students to China. It’s hard to understand why the Chinese government doesn’t spend some of its vast savings developing a system of education commensurable with the third-largest economy in the world.
After fifteen years of letting up on party control in the economy, the Communist Party began in 1994 to rebuild itself by giving party members incentives to participate in economic development. So far the result has been more concentrated power but with a new efficiency in the state-controlled enterprises in energy, steel, transport, communications, electricity, and health. A new coalition of elites is in charge, rewarding itself for successful initiatives all the way down to the local level. Despite the increasing gap between rich and poor, the party has spent a great deal on social services with special attention to the backward areas in western and central China.
China’s Mixture of Investment Capital
China’s banking system is a mixture of four giant state-owned banks, derivative of the socialist economy; joint-stock commercial banks founded for development purposes in 1994; and city banks. The government owns a majority interest in almost all state banks. Direct foreign investment is large and comprised mainly of long-term commitments. Termed “patient capital,” these commitments allowed China to survive the Asian financial crisis of 1997–1998 much better than most countries in the region. The Chinese are great savers, so interest rates have continued to be low. Private and public savings in China have formed America’s great piggy bank in its twenty-first century spending spree. Corporations in China still have far to go in creating sound organizations. State banks are plagued with insider favoritism. The security of Chinese investments is going to depend upon putting in place financial accountability, better laws, and transparency. As a step in that direction Chinese bank regulators in 2008, partly in response to the worldwide recession, increased the number of qualifying examinations candidates for positions in finance must take as well as widened the range of employees who must take them.23
New laws permit foreigners to invest directly instead of through joint ventures. Unlike most developing nations, China enjoyed the patronage of lots of rich Chinese living outside the country. They were either expats, many of whom had fled to Hong Kong in the 1950s and 1960s, or descendants of emigrants from earlier Chinese diasporas. Now that China has embraced the market, these ethnic Chinese have been eager to invest in the country and found ways to do so formally as well as informally through money clubs and shops. And they have very deep pockets. In the Philippines ethnic Chinese represent 1 percent of the population and own close to 60 percent of the wealth. In Indonesia their wealth is greater with 1 percent of the population controlling some 70 percent of the country’s private economy, including its largest conglomerates. The Burmese economy is even more dominated by ethnic Chinese.24 Backed by this wealth, foreign capital and foreign companies flooded into China. A new profit tax replaced the system of profit retention.
China has found its best customers in Japan and the United States, but it is now embarking on a program to make its Tibetan cities nexuses of commerce with India. China’s premier Wen Jiabao visited India in 2005. His trip served as a catalyst in the process of building overland trade routes between the People’s Republic of China and India through Tibet. As with so many developments in China, this one is directed not so much to get the biggest bang from the yuan as to serve social and political needs. The Red Army of the People’s Republic of China invaded Tibet in 1951. Eight years later the Dalai Lama fled Tibet and began a global campaign to achieve more autonomy for his former country. China has encouraged its people to move to the region and would like now to accelerate the integration of Tibet into the nation proper, a move vigorously contested by native Tibetans.
Pouring resources into its poor western region serves other social and economic goals. The completion of a new railway from the Tibetan border makes it much easier to access Calcutta, which is 750 miles from the southwestern border of China. At the same time, China has built a blue water navy to patrol the Arabian Sea and Indian Ocean sea-lanes used to carry its oil. Border disputes have kept India and the PRC at arm’s length for half a century, but with both countries ready to exploit new economic opportunities, they may well want to bury the hatchet. The threat of declining sales in Europe and the United States makes this policy more attractive. Trader fervor has even extended to the violence-pocked frontier of Kashmir with trucks of apples and walnuts going from India and returning with rice and raisins.25
China’s exports exploded in the last decade of the twentieth century, those going to the United States alone doubling from $100 billion to $197 billion in the first four years of the twenty-first century. The wrenching contraction of demand for China’s exports during the economic downturn, off by 18 percent in the closing months of 2008, is testing the flexibility of its economic policy makers. At the same time, the sophistication of its exports increased with computer peripherals and consumer electronics joining footwear and toys. Exports include auto parts, as befits China’s robust automobile manufacturing sector.26 In 2004 China passed the United States as the world’s leading exporter of information and communications technology, a strong sign of its success in preparing a skilled labor force. Domestic spending absorbs little more than one-third of China’s annual production, compared with two-thirds in the United States.
Like its people, the government is cautious with its great wealth, stashing most of it away in U.S. Treasury notes. This is a boon for the American economy, but not necessarily good for the Chinese one. It leaves a great scope for continued economic growth in China if the party can find the means to turn its many savers into spenders. The economic downturn of 2008 makes such a campaign more imperative, but it won’t be simple. The Chinese save because they don’t have Social Security, so the government would have to expand pension programs. Manufacturing priorities would have to change. Chinese consumers would want a different range of items from the mini hi-fi systems and high-priced footwear Westerners cherish. Still, the effort is being made. The government is encouraging its banks to lend more and to lower down payments for house mortgages from the current 20 to 30 percent. Turning the Chinese into mall rats would have an impact on the entire global economy, for presumably there would follow more imports from abroad.
Economic development in China is coming along nicely, but social changes are proceeding more slowly. Chinese men and women must cross the Rubicon of privatization with the party sitting on their shoulders. Or to use a Chinese expression, they are crossing “the river by groping the stones.” Because the Communist Party maintains comprehensive control, it influences a range of what would be private, individual decisions elsewhere. A residents’ committee is responsible for everything that happens outside people’s work units, which have their own party committees monitoring behavior. The residents’ committee looks after housing but also arranges weekly political studies, operates day care centers, and distributes ration coupons.27 On top of this structure rides the party discipline committee, founded in the early 1980s to prevent and punish party members’ abuses of power. It is staffed by retired party members, as are various street patrols. This control mixes poorly with the free and easy communication introduced by information technology. The American search engines Google and Yahoo have repeatedly had to struggle against bouts of censorship imposed by the Chinese government, no friend to free speech.
The interconnectedness of the global economy and the world press that covers it guarantees that no bad deed will go unpublished, if not unpunished. Press coverage like that of the tainted milk scandal of 2008 could have been suppressed when Chinese leaders ran an autarkic economy. Those leaders who succeeded Deng have been willing to accept this tradeoff, recognizing that there is no development without closer and closer linkage to the world even though the global connectedness means that it cannot squash studies like the one the World Bank did in 1997, when it estimated that air pollution costs China 8 percent of its GDP.28 The world’s news media exhaustively covered the earthquake in May 2008 in Sichuan Province, where eighty-eight thousand died or were missing, and five million were made homeless. This natural disaster quickly became a political one when it became apparent that shoddily built schools accounted for an exaggerated death rate among children.
These contacts will change China’s people and their relation to the world, even if we can’t predict exactly how. Foreign reporters now publish stories on the extent of corruption in China. Estimated to absorb between 3 and 15 percent of China’s seven-trillion-dollar economy, corruption takes many forms from inside trading and crony deals among local officials to shakedowns and counterfeit money in paychecks. The government punished more than five thousand local officials for corrupt practices in 2008, but party members form the backbone of its governance. Bribery to ensure a successful operation, entrance into a school, or to get a driver’s license is common. With more money sloshing through the society, opportunities for graft have escalated. Victims can and do post protests on the Internet, but they risk violent retribution.29
As the 2008 Summer Olympics in Beijing demonstrated, China is not only ready to be a world player but willing to spend billions to put on a global show of its talent, discipline, and creativity.30 Just how far China has come can be measured in little as well as big ways. In 1987, one flight arrived in Beijing every twenty-four hours from Tokyo’s Narita Airport, one daily flight between a city with some ten million people and another with twenty-nine million! Think how many flights crisscross the space between Los Angeles and San Francisco or New York City and Philadelphia or Boston. But that was then. Now there are many airlines and dozens of flights. Shanghai, for instance, has a 240 mph train taking passengers to its airport. From Hong Kong ships carrying those boxes that revolutionized cargo shipping leave at the rate of one per second, year round, the equivalent of forty million standard containers. Confronted with worldwide recession in 2009, China slowed down, but the pace before had been hectic.
Shock without Therapy in Eastern Europe
China’s reforms, though profound, were gradual, unlike those in Eastern Europe, where as one commentator said of Poland, we underwent “shock without therapy.”31 Simultaneously Russians embarked on perestroika, economic restructuring, and glasnost, creating transparency in the exercise of political power, in the 1980s. The peaceful collapse of the Soviet Union in 1991 came in the midst of this double effort to convert a party-dominated political order into a democracy and a command economy into a market-oriented one. In the early 1990s, exuding a bit of the triumphalism occasioned by “the fall of the Wall,” Western experts advised the former Communist nations to enter the market with a big bang. Speaking through the World Bank and the International Monetary Fund, these advisers recommended an immediate freeing of prices from all controls and a selling off of state-owned properties to private parties. They expected that the economies would tank for a short while, then quickly recover. Instead production took a long slide, and prices rose to inflationary rates.
Russia saw its so-called Soviet nomenklatura grab everything of value they could lay their hands on in a hasty privatization of state property. Criminal organizations formed faster than government’s capacity to control them. There was too quick a selloff of state properties, too large a gap yawning between the newly rich and the remaining poor, too tense a relationship between civil society with its pesky organizations and the nation’s testy authoritarian leaders, not to mention the rivalry with upstart billionaires. It’s always difficult to analyze what didn’t happen, but the comparison with China and India suggests that Russia lacked leaders knowledgeable about modern economics and a people capable of slipping into the rhythm of working in order to spend. Nor was its legal system up to the task of reining in the Russian mobs and criminals that took advantage of the weakened state of the transition government. Another problem plagues Russia. Unlike the most populous countries of China, India, and the United States, it is losing population at the staggering clip of half a million persons each year. In fifteen years it will drop from the ninth-largest country in the world to fifteenth or sixteenth, close to Turkey in size.32
At this point it remains a question whether Russia’s development will add an arrow to capitalism’s quiver. The resumption of sovereignty among the old Eastern European bloc nations, which are also experiencing population declines, led to similar dual efforts to democratize the political order and dismantle the old command economy simultaneously. Poland, Hungary, and the Czech Republic have done this with a bit more success, though their neighbor Bulgaria was named the most corrupt nation in 2008. Russia enjoys the clout of being an oil-exporting country, a fact that stays the hand of the European Union when faced with Russian intransigence on certain issues. But natural resources work in many places to embarrass development. Their revenues relieve leaders from gaining popular support; their “quick riches” fix encourages the postponement of the more strenuous tasks of building a strong economy.
Britain’s Complex Legacy in India
India has developed even more slowly than China, but much more promisingly than the Eastern European economies. Its vibrant political and intellectual life may yet prove more of an asset than China’s authoritarian system. For three hundred years before it achieved independence, India had been a colonial possession of Great Britain, the trailblazer for capitalism—and not just any colony but a uniquely important one given its culture, population, size, textile manufacturing, and strategic location. In the late seventeenth century, the English East India Company began bringing home printed calicoes and striped ginghams from India. These colorful cottons caused an instant sensation with the English, who could now adorn their bodies, their windows, or divans with light and bright fabrics. At the height of the calico craze, the company carried the designs for favorite English patterns like paisleys to Indian weavers to copy. Pretty quickly, English clothiers summoned their political clout and got laws passed to reduce these imports to a trickle. Thus began Britain’s deindustrialization of India, whose fabrics had been famous since the time of Heroditus. The East India Company stopped buying finished cloth and instead imported raw materials for English clothiers to work up. Indian cloth manufacturers confined themselves to nearby markets that didn’t interest the English.
This story bears heavily on the colonial history of India. Attached to the British economic behemoth, India became the recipient of millions of English pounds sterling in public works, but they were directed to benefiting the empire, not India per se. After 1830, British officials began promoting production over trade. In mid-century they started to build offices and residences for their many officials, along with canals, roads, lighthouses, postal services, telegraph lines, and irrigation projects. Laying railroads across India became crucial to the consolidation of British political and military domination. For the sixty years between 1860 and 1920, British engineers constructed nearly six hundred miles year in and year out. By 1900 India had the fourth-largest railroad system in the world.33
Great Britain looked upon this investment as a great civilizing effort for which the Indians should be thankful. As Queen Victoria memorably said when announcing her kingdom’s desire to stimulate the peaceful industry of India, “their contentment [will be] our security, their gratitude our best reward.” But the wretched poverty of the Indian people and the sight of the fruits of their labor stacked on the decks of home-bound British freighters animated a core of critics and activists. One of them, Dadabhai Naoroji, became the first Indian to win a seat in the British Parliament, from which he attempted to educate the English about their oppressive regime. The British raj, he said, was bleeding India for “a cannibalistic imperial economy.” A gifted mathematician, Naoroji developed statistics to prove his case, estimating that England was taking 200 million pounds sterling from India, where per capita income, measured in rupees, was 20, compared with 450 in Great Britain. The British reaction was to form a commission to study the issue, a classic delaying tactic. In 1885 Naoroji participated in the formation of the Indian National Congress. He also became the mentor of a young admirer named Mahatma Gandhi. At first working within the British system for reforms, the INC later led the anticolonial movement that achieved independence in 1947.34
From the perspective of capitalism’s history, India’s critics are significant for two reasons. They astutely perceived that British officials treated economics as though it were a natural system like physics instead of a social system created by human beings for their purposes. Maintaining that economics is natural is politically useful. It reduces railing against the workings of the economy to cursing the rain clouds. If instead the market were seen as a set of social practices and institutions, patriotic Indian reformers could reasonably agitate for change. Exposing the ideological basis of the convenient fiction that natural laws govern economic relations became essential for the Indians if they were to get outside the mind-set of their British rulers. They needed to understand why India’s integration as a producer of raw materials within the global economy led to their impoverishment.
Even more important, the Indian critique of capitalism predisposed Indian leaders, after independence, to pull away as much as possible from the global commerce centered in Western Europe and the United States. Instead they promoted cottage industries, handicrafts, cooperative banks, and credit societies that would ground their economy in the traditions of the rural communities where most Indians lived. Even now corporations with global connections employ only 7 percent of India’s workers.35 In the late 1940s, when the Western world was on the cusp of its greatest period of economic expansion, the leaders of both India and China crafted self-sufficient economies to match their new political autonomy. The Indian one was socialist and democratic; the Chinese, Communist and authoritarian. Perhaps as important, India maintained intellectual contact with the Western world while China became as isolated from Western influences as possible. Most educated Indians continued to speak English; Chinese English speakers got older with every year as the prerevolutionary elite aged.
The fact that in 1820 China and India contributed nearly half of the world’s output is a good reminder that they had been prosperous countries earlier. Unlike many emerging markets in the contemporary scene, they had historical roots much deeper than those in the West, giving their people a strong sense of identity as Indians or Chinese. Their cultural traditions were not weathercocks but deep-harbor anchors. They also carried with them a heavy burden from the past. One of the most distinctive features of Indian society is its castes, those inherited statuses that have long defined privileges and prescribed behavior and occupations.
Literally hundreds of castes exist in India, arranged in a hierarchy with the untouchables, who make up 16 percent of the Indian population, at the bottom. The highest caste, the Brahmins, gave its name to an English word for “a highly cultured or intellectual person,” as in “the Brahmins of Boston.” In 1973, a bus carrying eighty-six persons was trapped in floodwaters southwest of New Delhi. A passerby waded out to the bus with a rope that he had tied to a truck, asking the passengers to haul themselves to safety. But since the passengers belonged to two different castes, they refused to share the same rope, preferring to stay in the bus as it was swept away.36 A little-recognized feature of capitalism is its impatience with such distinctions. For example, the economic stagnation of the American South after the Civil War persisted in part because of the legal system of segregating African Americans in public places.
The Indian Constitution outlaws caste-based discrimination, and it has largely disappeared in the cities. Yet as late as 2008 the relatives of a girl who received a love letter from a fifteen-year-old boy of a different caste threw the teenager in front of a train after giving him a public humiliation. Oddly enough, lasting traces of caste remain in politics, where castes act as interest groups. In 2008, Uttar Pradesh, the largest state in India, stunned the nation when it elected an untouchable woman as its head. Kumari Mayawati has put together a coalition that has attracted voters from all ranks of the Hindu caste system.37 A convenient organizing principle, caste-based politics promote patronage practices that undermine merit as a basis for promotion in both politics and economics.
Despite its democratic beginnings, in 1947 newly independent India went through a blood-soaked separation of its Hindu and Muslim populations. Great violence attended the exodus of the Muslim population from India to Pakistan and later to Bangladesh. Nor was the separation complete. India today has the third-largest Muslim population in the world, a frequent source of violent conflict, as the 2008 terrorist attack in Mumbai sadly showed. Because of China’s impressive economic development, some experts are jumping to the conclusion that authoritarianism and capitalism can live well together. They say that the firm hand of the Communist Party may have been essential for a stable transition from a command to a market economy, something unnecessary in India, where partisan politics disturb without destabilizing. Others rush to point out the superior environment democracies offer, though India’s politics are far from admirable. Of the 522 members of Parliament in 2008, 120 were facing criminal charges.
The powerful Congress Party, which has ruled India since independence, must now put together fragile coalitions to rule at all. Biting the bullet to execute urgently needed reforms gets harder and harder, for Indian legislative sessions are raucous, unruly affairs.38 A more interesting question perhaps is whether there are elements in capitalism, such as private decision making, easy communication through the market, promotion of innovation, and the indulging of consumer tastes, that create a tide pulling developing countries toward more participatory politics. Both Taiwan and South Korea went from authoritarian politics to democratic ones. Singapore is an excellent test of this proposition since its laws are severe and its economic progress is remarkable.
India’s Modernizer
The architect of India’s new prosperity is Manmohan Singh, who started steering the Indian economy in a new direction when he became finance minister in 1991. A Sikh, Singh took advantage of an acute financial crisis to dismantle the socialist elements in India’s economy. He privatized public companies, invited in foreign investments, and stimulated both imports and exports. Most significant, he got rid of the License Raj, an elaborate system of regulations whose red tape had been choking enterprise for decades. Put in place by Pandit Nehru in 1947, the License Raj instituted the Planning Commission that administered the economy through Soviet-style five-year plans. Singh became prime minister in 2004. Although an intellectual and moderate, he has built a power base in the working class, as distinguished from the jobless impoverished who still predominate in the countryside.
Most Americans became aware of India in the global market when they telephoned their computer companies for technical support and found themselves talking to someone with an English-accented, Indian-lilting voice. In the 1990s American companies seized the opportunity to outsource their customer services to India, where there was a huge, fairly well-educated, English-speaking, low-wage work force. American and British banks are outsourcing clerical work as well. Service outsourcing, as distinguished from moving factories to cheap-labor sites, started two decades ago, when New York City banks airmailed their daily transactions records to Ireland, where another group of well-educated, English-speaking, low-wage workers processed them for a quick return flight. As American firms send their “back office” work to India, so European companies are turning to Eastern European countries for their number crunching and bookkeeping. In a new development, India’s offshore specialists have begun hiring thousands of Americans to help them compete for higher-end work in technological services. Indians want to move up the white-collar ladder.
The importance of these call centers to India can be gleaned from the predominance of work in the service sector of the economy. While the actual number of farmers has declined steadily to 24 percent of the population, the percentage of those in service work has grown to 50 percent. By comparison, China has become the world’s factory with almost 50 percent of its workers in industry. Each country has found its comparative advantage in the world market. And their investment in higher education reflects this difference. Fewer than 1 percent of Chinese men and women have had any college education, compared with 3 percent of Indians, both extremely low numbers for countries that want to be world leaders.39 Both countries have suffered from a brain drain as some of their most talented young people seek better jobs abroad. India has produced legions of software engineers, many of whom have emigrated to the United States. With prosperity and progress evident back home, some of these people have returned to participate in the great national effort to build economies equal to their country’s distinguished histories. And they often bring new skills and fresh capital with them.
Two-thirds of India’s 1.1 billion people live in the countryside, though some of them, as in China, work in rural factories. A quarter of this population, some 215 million people, live in degrading poverty despite the enormous changes in Asian agriculture made in the 1970s and 1980s. Looked at a bit differently, 65 percent of Indians live on agriculture, representing less than 18 percent of the GDP. With independence, the rate of Indian population growth accelerated, along with that of much of the Third World. The British had invested little in agricultural improvements in India, even though their own agricultural sector performed marvelously. The disappearance of cholera, smallpox, and malaria in the 1960s extended lives in India before fertility rates began to drop, wiping out any economic gains of the 1950s. To meet this new Malthusian crisis of too many mouths for too few bowls of rice or loaves of bread, Western aid groups embarked on a crash course to avert famines.
Former New Deal Agricultural Secretary Henry Wallace persuaded the Rockefeller and Ford foundations to come to the rescue of hungry people, starting in Latin America. Once on board, the Rockefeller Foundation established the International Center for Maize and Wheat Improvement in Mexico and the International Rice Research Institute in the Philippines. There they drew upon the skill of geneticists to develop new strains of rice, wheat, and maize that would respond to new fertilizers and grow short, stout stalks to hold up heavier heads of grain. Norman Borlaug, like Wallace an Iowa farm boy, who knew a thing or two about raising wheat and corn, won a Nobel Prize for his modified strains of wheat and rice. Starting in 1963, Ford, Rockefeller, and the United States Agency for International Development carried these seeds to the southwestern wheat belt that extends from India’s Punjab district through to Turkey. Soon honored as a Green Revolution, these high-yield varieties doubled 1995 cereal production in Asia. Real per capita rural income doubled even though land under cultivation increased by only 4 percent. Diet improved, adding significantly to the extension of life expectancy.40
These advances in Third World agriculture were not without cost. Many farmers overused both water and fertilizers, adding to the degradation of the environment. Inequality in rural areas increased because many of the poorest farmers ignored the new seed and techniques for applying fertilizers. Larger harvests from the improvers sent food prices tumbling, so the poorest got poorer, as had happened during the Agricultural Revolution in England three centuries earlier. After a promising start, the advances of the Green Revolution began to stall in the 1990s. The governments quit financing new irrigation projects, failed to lend farmers money, and didn’t build the transportation links necessary to get harvests to city markets. It also pulled back on research.
Half the children in India today suffer from malnutrition, despite an economic growth rate moving into double digits. The need for public health and sanitation programs is crucial. Still in the much-touted state of Kerala on the southwestern tip of India, life expectancy and literacy match American rates. As a model Kerala is mixed. The leftist state government invests heavily in health and education—and it shows—but the scarcity of jobs sends almost two million of its young men and women abroad each year. From their adopted homes, these workers in Dubai and surrounding areas send back remittances that account for a quarter of Keraleans’ annual income. All remittances from Dubai returned to Pakistan, Uzbekistan, and Bangladesh in addition to India total sixty-five billion dollars a year!
Next to the United States, India has the world’s most acres under cultivation. Given its wide variation in soils and climates, India could well be a cornucopia of fruits and vegetables for its people and for the world.41 Yet much of this land is in semiarid areas, where water shortages hamper the introduction of high-yield seed and improved fertilizers. Others get too much water from seasonal flooding. Both India and China face future water shortages. India has been forced to import rice and grain, putting more pressure on world food prices. These imports stirred the government to raise the prices of the grains it bought from farmers as a way to encourage them to expand production. Even grimmer signs of distress in the countryside have been the hundred thousand desperate farmers who committed suicide in the last two decades. Prime Minister Singh has promised that the government will act to relieve rural misery.
Though it would seem that there are enough acres in India to accommodate both manufacturing and farming, in fact farmers and manufacturers clash bitterly and repeatedly over land usage. India’s automaker Tata drew up plans for a plant on the delta plains of the Ganges River, where the soil is so fertile that farmers get two rice crops a year along with growing garden vegetables, all easily transported to New Delhi by a new national highway. Such a location was ideal for Tata, but protesters succeeded in stopping the construction. The conflict highlighted the militancy of India’s farmers; it also signaled a fresh and strong move to develop manufacturing. India has differed from its Asian rivals and neighbors by concentrating first on its domestic market rather than going for exports, as had China, Taiwan, and South Korea. Now that is changing.
John Deere, LG Electronics, the Essar Group, Honda, Toyota, Nissan, Motorola, General Motors, and Whirlpool all have built multimillion-dollar plants in India to serve its many consumers as well as the vast export market. The government is predicting annual foreign investments to top thirty billion dollars. India’s new consumers have heated up its automobile market, now the fourth largest in Asia. Ford, General Motors, and Japan’s big three chalk up big sales each year. More than a third of the buyers are purchasing their first car. More than 90 percent spend less than fifteen thousand dollars for their vehicles, and India’s Tata Motors is determined to bring that cost down with a five-passenger vehicle priced at twenty-two hundred dollars! Another Indian automobile company, Reva, offers Indians a two-passenger hatchback that runs on electricity. The environmental and economic concerns of the twenty-first century have enhanced the prospects of Indian automobile makers who have been concentrating on cheap, energy-efficient cars. Reva plans to market its electric automobiles in Europe and has already acquired European Economic Community certification.42
India’s demographic dynamics make it competitive with China, where the one-child policy is shrinking the size of the next generation of workers. Not until 2030 will India nudge China out of first place in world population. Already its cohort of men and women, ages twenty to twenty-four, entering the job market in 2013, will be 116 million, compared with China’s 98 million. Half the Indian population is under twenty-five; 40 percent under eighteen. In 1950, 29 percent of the world population lived in cities; in 2008 the figure was 60 percent, with India in the vanguard. Singh has committed billions to refurbish sixty-three Indian cities. Plans call for luring the poor in from the depressing outskirts of urban areas with decent living. Hyderabad has completed its urban renewal, and Calcutta and Bangalore have entered the blueprint stage. What makes these ambitious programs possible has been the 8.8 percent growth rate India has sustained for several years. Should it persist—a tall order—its one-trillion-dollar economy will double by mid-2016!
A Young Cohort of Indian Consumers
India is pressing close to the United States in having the world’s top spenders; domestic consumption is 64 percent of Indian GDP, compared with 70 percent in the United States, 57 percent in Japan, 54 percent in Europe, and 38 percent in China. Retail lending now accounts for one-fourth of all credit extended by banks. Where China is a country of savers, India is one of spenders. In a nice folkloric touch to this contemporary phenomenon, banks hire drummers to serenade debtors who fall behind in their payments. They must be working overtime now, as India’s debtors find themselves caught in a credit squeeze. At the same time, Indians save, their rate moving from 28 to 35 percent last year. The conservative policies of Indian banks keep their spending in check. Their wisdom became apparent when the global financial center collapsed in the West in 2008. Comparing themselves with the West, Indian banking leaders stressed their restraint: few home equity loans, no securitized mortgage investments, no subprime mortgages. No Indian banks have failed or received government bailout funds, but even the strong can get pulled down when they’ve tightly embraced others less prudent.43
Maybe moviemaking and consumption go together, for India has achieved world recognition for its films, its industry familiarly called Bollywood. Sports too have been drawn into the capitalism catch basin. None is more popular in India than cricket, whose world headquarters moved from its old Lord’s Cricket Ground in London to Mumbai, no doubt the better to serve the multitudinous fans in India, Pakistan, and Sri Lanka. With a cohort of twenty-somethings gaining good incomes, Indians buy clothing, CD/DVD players, color TVs, air conditioners, and kitchen equipment at a fast clip. The new hyperrich are snapping up Chanel perfume, Piaget watches, Louis Vuitton bags, and Rossetti shoes, now available in their own stores.
The popularity of mobile phones has transformed retailing. As ardent spenders Indians want to get the best buy for the rupee and search the Internet for good prices. With such a promising market, the Finnish firm Nokia built a plant in India while the American firm Motorola, turned multinational, built the first global headquarters in India. In 1996 the Forbes billionaire list included three Indians; in 2006 there were twenty-three. They typically made their billions in telecommunications, wind energy, and a mix of information technology, synthetics, and textiles, along with oil and gas exploration and refining.
The biggest billionaire of all is Mukesh D. Ambani, whose father’s company, Reliance Industries, has a finger in every Indian economic pie. Ambani is more than the wealthiest man in India; he is also a secular prophet and a Bill Gates–like doer. He envisions eliminating India’s poverty within fifteen years and has suggested that Reliance build a new, more livable city across the harbor from his native Mumbai. The changing of the name of Bombay to Mumbai was a deliberate gesture to erase a lexical association with Britain. Ambani, whose family came from a merchant caste, exemplifies this spirit. Unlike the Brahmins of old who went to Oxford and adopted English tastes, Ambani prefers to speak his native tongue at home, loves the kind of Indian food that is sold on streetside carts, and relaxes with two or three Bollywood films a week.44 Offering an entrepreneurial speedup to the sluggish pace of social reform in India, Ambani embodies the spirit of the New India, its back firmly turned against its socialist past.
Mahatma Gandhi and Mao Zedong—Two Men Cast Long Shadows over China and India
Because capitalism impinges so closely upon attitudes, values, habits—the stuff of culture—it is worthwhile comparing China and India in yet one more way. Both countries found their venerable traditions challenged by a charismatic leader in the late 1940s. Perhaps some of their responses to capitalism can be traced back to the impact of those two giants, Mahatma Gandhi and Mao Zedong. Gandhi headed the movement for India independence from Great Britain from 1913 to 1948, when a Hindu extremist assassinated him six months after India had reacquired its autonomy. Educated as a lawyer in London, Gandhi at twenty-four began a twenty-year stint in South Africa, which had a sizable Indian population in 1893. Outraged by the treatment of people of color there, Gandhi found his calling as an advocate for justice, a passion that landed him in prison on several occasions. He came to see civil disobedience and passive resistance as the best means for a suppressed people to build the solidarity and courage to overthrow their oppressors.
Gandhi dreamed of an India not only free of the British but liberated from the ugly clatter and soul-destroying exploitation of industrial societies like the one that the British had imposed. With ascetic habits, Gandhi inspired a powerful mix of love and admiration with a determination to prevail. His successor, Jawaharlal Nehru, succeeded in investing India’s modern constitution with guarantees for human rights that reflected Gandhi’s ideals. While the constitution recognized caste identities and the distinction between Hindus and Muslims, it corrected many unfair land laws and raised the status of women. Gandhi, who himself built on a long Indian tradition, stressed peaceful means of protest, a stance still lively in his country. He also bred a tolerance for India’s diversity reflected in its twenty some political parties competing for authority today.
Mao came to power in China as the victor in a defensive war against Japanese occupiers and a protracted civil struggle with the Chinese Nationalists. The internal conflict began in the late 1920s, when he was in his thirties and lasted until 1949 with the creation of the People’s Republic of China. Mao matured as a brilliant and ruthless general whose commitment to Communist principles dictated the course he followed when victorious. He masterminded a violent transformation of a traditional and, in some ways, very sick Chinese society. Once peace arrived, the Communist Party succeeded in eradicating prostitution, the exploitation of children, foot binding for women, and opium dens. Invested with totalitarian power, the party redistributed land and conducted a bloody suppression of “counterrevolutionaries.” Mao and his associates also put into place a party structure, answerable to him, built up from the lowliest village through levels of command leading up to Chairman Mao.
While both India and China sought to ameliorate their countries’ poverty by withdrawing from the international trade that seemed to have impoverished them, their experiences differed dramatically. India’s people began an education in civic participation after independence, guided by Gandhi’s self-effacing personal philosophy, whereas the Chinese people, while receiving many benefits from the state in health care and education, became objects of control. If Gandhi was an inspiration, Mao was an organizer. Despite the lingering bitterness from their colonial status, Indian men and women stayed closer to the Western world. They could much more easily become sophisticated consumers than the Chinese, who will need another decade or two to escape the numbing distortions and severe isolation that their totalitarian regime imposes upon them. The Indians, in a rather interesting twist of fate, have benefited from their caste system because the Vaishyas, the merchant caste, have had generations of experience in commercial enterprise. With a government tied in knots by its crosscurrents of influence and a caste deftly cutting a path toward global leadership, it’s no wonder the Indians like to say that “our economy grows at night while the government is asleep.”45
Each country has its liabilities, and India’s are grave. While India’s labor laws prevent exploitation, the country suffers from pervasive corruption, dangerous roads, frequent protests, violent attacks on religious minorities, abysmal sanitation, and chronic power shortages. Its financial system is stronger than China’s state-owned banks, standing it in good stead during the 2008 financial meltdown.46 The Chinese government can move more swiftly to solve social problems than the clogged democratic system in India, exacerbated by its diversity of religions and ethnicities. China shares many of India’s problems: the profound poverty, the pervasive corruption, and the widening gap between rich and poor. Where Gandhi became a hero throughout the Western world, Mao was a global pariah. Working off these legacies will take some time.
A deeper problem to solve confronts the higher-status people of India and China: the ingrained contempt they show for the lowly of their society, especially peasants. An attitude beyond the ken of most Westerners, it runs deeper than mere prejudice, generating so much bitterness that leaders in both countries have addressed it specifically. The liberalization of politics began mitigating similar aristocratic mores in Europe in the eighteenth century. Like religious hostility or formal and informal caste systems, such ways of being in the world run athwart the homogenizing tendencies of capitalism. The open, prosperous societies that everyone in China and India seems to desire will wait in part on the cessation of indignities showered on poor country people.
Before the World Trade Organization’s Doha talks collapsed in 2008, both India and China were invited to join a new group of seven industrialized nations, which will include the United States, the twenty-seven nations in the European Union, Brazil, Australia, and Japan. In the lingo of Wall Street investors, the BRICs, the emerging markets of Brazil, Russia, India, and China, are hot. In 2007 India, China, and Brazil produced the most millionaires, proof of their prosperity as well as of the unequal rewards of the capitalist system.47 The downside of being hot emerged for the emerging markets in 2008, when foreign investors, short on cash, began withdrawing their money to cover their leveraged debts back home. India alone lost eleven billion dollars. They all experienced a double whammy in the shrinkage of demand for the exports that had fueled their economic growth and the contraction of foreign investment funds.48 At least they are in the same boat as their customers.
Europeans and Americans have not yet fully taken in the meaning of Asia’s arrival on the world economic scene. Not only has it moved the center of commercial gravity to the Orient, but more intriguingly, it has demonstrated the chameleon capacity of capitalism to adapt itself to sites far from its homelands. It doesn’t seem that the Asian tyros are yet aware of their power either. The lingering orientation of China and India toward the United States is captured by the fact that together they own two trillion dollars in U.S. government securities. Since these yield practically nothing, economist Lawrence Summers has urged Asian leaders to put that money into a regional fund to finance infrastructural projects instead. Such action would be timely, for like their Western predecessors, India and China have polluted their way to economic development. Summers has also pushed the South Asian Free Trade Alliance to study ways that cooperation can enhance the competition that already exists.49 India and China have made evident their entrance on the world economic stage during the past two decades. Just how the original capitalist nations of the West will adjust to their presence, their power, and their different political approaches adds excitement to thoughts about the future.